The Nobel Prize

Paul A. Samuelson (b. 1915)

Paul Samuelson was born in Gary, Indiana, USA in 1915. As an undergraduate he studied under such leading economists of the time as Frank Knight (1885–1972) and Jacob Viner (1892–1970) at the University of Chicago, from where he received his BA in 1935. He moved to Harvard University to undertake graduate work and was awarded an MA in 1936 and a PhD in 1941. Samuelson’s doctoral dissertation won Harvard’s prestigious David A. Wells Prize. In 1940 he joined Massachusetts Institute of Technology (MIT) as an Assistant Professor of Economics and was subsequently promoted to Associate Professor in 1944 and Professor of Economics in 1947, at the age of 32. In 1966 he became an institute professor and, following his retirement in 1986, he is currently Institute Professor of Economics, Emeritus, at MIT. In addition to his academic career, Samuelson has also served as an adviser to the National Resources Planning Board (1941–43), the United States Treasury (1945–52, 1961– 74), the Council of Economic Advisers (1960–68) and, since 1965, the Federal Reserve Board.

Samuelson’s many offices and honours include: the award of the first John Bates Clark Medal of the American Economic Association in 1947; presidencies of the Econometric Society in 1952, the American Economic Association in 1961 and the International Economic Association from 1965 to 1968; and the award of the National Medal of Science in 1996. In 1970, Samuelson was the first American to be awarded the Nobel Memorial Prize in Economics ‘for the scientific work through which he has developed static and dynamic economic theory and actively contributed to raising the level of analysis in economic science’ (Nobel Foundation, 2004).

Samuelson is widely acknowledged as being one of the greatest economic theorists of the twentieth century. His contributions to the discipline span, quite remarkably, nearly every branch within economics, as exemplified by the contents of the five volumes of his Collected Scientific Papers (Samuelson, 1966; 1972; 1977; 1986), which contain 388 publications. Rather than attempt the almost impossible task of surveying the depth and breadth of his scientific work, in what follows we merely sketch some of his main contributions to the fields of consumer theory, international trade theory and macroeconomics.

In one of his earliest published papers, which he wrote when he was a graduate student at Harvard University, Samuelson (1938) demonstrated that the demand curve could be derived from observing actual purchases in markets. As such, the household ‘revealed’ its preferences on the basis of its observable market behaviour. In the field of consumer theory, Samuelson’s notion of ‘revealed preferences’ (see also Samuelson, 1948b) has allowed empirical studies of observable market behaviour to become much more closely integrated with theoretical designs, such as utility maximisation.

In international trade theory, Samuelson has made a number of important contributions, including an analysis of the gains from international trade between two countries (Samuelson, 1939b), and the effects of tariffs on the distribution of income (Stolper and Samuelson, 1941) whereby, according to the so-called ‘Stolper– Samuelson theorem’, protectionist trade policies raise the real wages of a country’s scarce factor of production. Using the framework developed by Heckscher and Ohlin (see entry for Ohlin in this volume), Samuelson has also demonstrated the conditions under which international trade results in the equalisation of factor prices between trading countries – an analysis which has come to be known as the ‘factor price equalization theorem’.

The third area we have chosen to illustrate some of Samuelson’s central contributions to economics concerns the field of macroeconomics. Here three examples will suffice. First, in an article published in the Review of Economic Statistics in 1939, he analysed the ‘Interactions Between the Multiplier Analysis and the Principle of Acceleration’ (Samuelson, 1939a) and was thereby able to explain the nature of short-term fluctuations associated with the Keynesian approach to the business cycle – an approach subsequently developed further by Hicks (see entry in this volume). Second, in another article on this topic published in the Journal of Political Economy later in the same year (Samuelson, 1939c), he introduced the Keynesian cross-diagram, or what has also come to be known as the Keynesian 45-degree line model. The cross-diagram has come to be the standard tool used for teaching first-year undergraduates the Keynesian theory of income determination. Third, in a paper published in the American Economic Review in 1960, which was co-authored with Robert Solow (see entry in this volume), he introduced the Phillips curve to the United States by considering the relationship between the rate of wage increase and unemployment for American data.

In addition to making significant contributions to these three fields of study, Samuelson has also offered important insights into other areas including: public economics (for example, his 1954 Review of Economics and Statistics paper, ‘The Pure Theory of Public Expenditure’, in which he analysed the optimal allocation of resources given the presence of private and public goods, rigorously defining the characteristics of public goods); capital theory (for example, Samuelson, 1958a, in which he presented an overlapping generations model); and the theory of economic growth (for example, his article with Robert Solow, ‘Balanced Growth under Constant Returns to Scale’, Solow and Samuelson, 1953).

Samuelson’s fame derives not only from the publication of numerous scientific papers in top-ranked journals but also from the publication of three highly influential books. His magnum opus, Foundations of Economic Analysis, was published in 1947. In this path-breaking book, which was based on his 1941 Harvard PhD dissertation, Samuelson, using mathematical analysis, demonstrated how economic behaviour could be understood as maximisation or minimisation under constraints. This book further revolutionised the study of economics by integrating comparative statics and dynamics and by developing dynamic stability analysis. His seminal 1939 article on the interaction between the multiplier and the accelerator provides a good example of such analysis. In 1958, Samuelson produced Linear Programming and Economic Analysis, co-authored with Robert Dorfman and Robert Solow (1958b). This classic book utilised optimisation techniques to integrate price theory and growth theory, and also christened the ‘turnpike theorem’, which defines conditions for providing an optimal growth path with the highest rate of growth. One indicator of the influence of these two books has been the subsequent increased use of mathematical analysis across the economics profession and the manner in which instructors at the graduate level have increasingly come to employ linear algebra and the mathematics of differential and integral calculus.

The third highly influential book is Samuelson’s introductory textbook Economics (Samuelson, 1948c), which was first published in 1948. The book, which has been revised approximately every three years and which, since the twelfth edition in 1985, has been coauthored with William D. Nordhaus, reached its eighteenth edition in 2004, and has been translated into more than 40 languages. Among the then-notable features of earlier editions of the book, its first edition included the Keynesian cross-diagram, while the concepts of the ‘neoclassical synthesis’ and the Phillips curve were introduced in the third and fifth editions published in 1955 and 1961, respectively.

Samuelson’s place as one of the greatest theorists who has ever lived is steadfastly assured. He has contributed fundamental insights in nearly every major area of economic theory and has raised the level of scientific and mathematical analysis in economics. Having written what is almost certainly the world’s most famous introductory textbook and contributed a regular column in Newsweek over the period from 1966 to 1981, Samuelson has done more than most to raise public awareness of his discipline.

Main Published Works
(1938), ‘A Note on the Pure Theory of Consumer Behaviour’, Economica, 5, February, pp. 61– 71.
(1939a), ‘Interactions Between the Multiplier Analysis and the Principle of Acceleration’, Review of Economic Statistics, 21, May, pp. 75–8.
(1939b), ‘The Gains from International Trade’, Canadian Journal of Economics and Political Sciences, 5, May, pp. 195–205.
(1939c), ‘A Synthesis of the Principle of Acceleration and the Multiplier’, Journal of Political Economy, 47, December, pp. 786–97.
(1941), ‘Protection and Real Wages’ (with W.F. Stolper), Review of Economic Studies, 9, November, pp. 58–73. (1947), Foundations of Economic Analysis, Cambridge, MA: Harvard University Press; enlarged edition published by Harvard University Press in 1983.
(1948a), ‘International Trade and the Equalisation of Factor Prices’, Economic Journal, 58, June, pp. 163–84.
(1948b), ‘Consumer Theory in Terms of Revealed Preferences’, Economica, 15, November, pp. 243–53.
(1948c), Economics: An Introductory Analysis, New York: McGraw-Hill.
(1953), ‘Balanced Growth under Constant Returns to Scale’ (with R.M. Solow), Econometrica, 21, July, pp. 412–24.
(1954), ‘The Pure Theory of Public Expenditure’, Review of Economics and Statistics, 36, November, pp. 387–9.
(1958a), ‘An Exact Consumption-Loan Model of Interest With or Without the Social Contrivance of Money’, Journal of Political Economy, 66, December, pp. 467–82.
(1958b), Linear Programming and Economic Analysis (with R. Dorfman and R.M. Solow), New York: McGraw-Hill.
(1960), ‘Analytical Aspects of Anti-Inflation Policy’ (with R.M. Solow), American Economic Review, 50, May, pp. 177–94.
(1966), The Collected Scientific Papers of Paul A. Samuelson, vols 1 and 2 (ed. J.E. Stiglitz), Cambridge, MA: MIT Press.
(1972), The Collected Scientific Papers of Paul A. Samuelson, vol. 3 (ed. R.C. Merton), Cambridge, MA: MIT Press.
(1977), The Collected Scientific Papers of Paul A. Samuelson, vol. 4 (ed. H. Nagatani and K. Crowley), Cambridge, MA: MIT Press.
(1986), The Collected Scientific Papers of Paul A. Samuelson, vol. 5 (ed. K. Crowley), Cambridge, MA: MIT Press.
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